The IPO market kicked off the fourth quarter with the wind at its back. IPO performance remained strong for yet another week as two companies raised a combined $651 million and generated double-digit returns. Following last week's pop from Roku (ROKU: +66% from IPO), another tech IPO, data center operator Switch (SWCH), traded up 23% this week. Rhythm Pharmaceuticals (RYTM) was the latest in a series of successful biotech IPOs, spiking 77% on its market debut. Both deals priced above the range, the same number as the entire 3Q17. The year's average first-day pop now stands at 12%, its highest point this year, with an average total return of 25%.
| 2 IPOs During the Week of October 2nd, 2017 | |||||
| Issuer Business |
Deal Size ($mm) |
Market Cap at IPO ($mm) |
Price vs. midpoint |
First-day return |
Return at 10/6 |
| Switch (SWCH) | $531 | $4,202 | 13.3% | 22.6% | 22.6% |
| Provides colocation services through three data center campuses. |
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| Rhythm Pharmaceuticals (RYTM) | $120 | $466 | 13.3% | 76.5% | 48.5% |
| Developing peptide-based therapies to treat rare genetic obesity. |
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Switch (SWCH), which provides colocation services through three data center campuses, raised $531 million by offering 31.25 million shares at $17, above the range of $14 to $16. The stock traded up 23% on Friday, likely benefiting from the growth potential of its undeveloped and partially-developed square footage. US data center stocks have historically been strong performers: the two most recent IPOs, QTS Realty Trust (QTS: +156% from Oct. 2013 IPO) and CyrusOne (CONE: +157% from Jan. 2013 IPO), have returned an annualized return of roughly 25% since their 2013 IPOs even before dividends.
Rhythm Pharmaceuticals (RYTM), which is developing peptide-based therapies to treat a rare genetic obesity, raised $120 million by pricing an upsized offering above the range. Insiders purchased $25 million worth of shares (21% of the deal). The company is targeting a small population with an unmet need; the accelerated regulatory pathway could lead to commercialization as soon as 2020. The stock spiked 77% on its first day, but settled down to a gain of 49% on Friday.
Black Ridge Acquisition (BRACU), an energy-focused SPAC formed by Black Ridge Oil & Gas (OTC: ANFC) also IPO'd this week. It raised $120 million by offering 12 million units (upsized from 10 million) at $10 and traded up 1.2% by week end.
IPO Pipeline Update: Nine new filings further support an active 4Q17
Nine companies joined the US IPO pipeline this past week. The group included four biotechs, each targeting $86-$150 million, and two tech companies. Cybersecurity provider ForeScout (FSCT) filed to raise $100 million; the company was reportedly valued at $1 billion privately. Aquantia (AQ), which makes 10-gigabit ICs, filed to raise $86 million. LBO'd water treatment company Evoqua (AQUA) was the largest filer with an estimated $400 million deal size, before news broke of a possible acquisition. Popular figurine maker Funko (FNKO) filed to raise $100 million, after sales grew 56% to $427 million (23% EBITDA margin) in an exceptionally strong 2016. New York-based Metropolitan Bank (MCB) also filed to raise $100 million.
IPO Market Snapshot
The Renaissance IPO Indices are market cap weighted baskets of newly public companies. The Renaissance IPO Index is up 30.0% year-to-date, ahead of the S&P 500, which is up 13.9%. Renaissance Capital's IPO ETF (NYSE: IPO) tracks the index, and top ETF holdings include Ferrari (RACE) and First Data (FDC). The Renaissance International IPO Index is up 25.9% year-to-date, while the ACWX is up 20.5%. Renaissance Capital’s International IPO ETF (NYSE: IPOS) tracks the index, and top ETF holdings include ABN AMRO Group and Covestro.
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